ASEAN After 50: Escaping the Middle Income Trap

August 8, 2017/in ASEAN Notes/by aseansc

Suraj Shah

Several ASEAN member states such as Malaysia, Thailand, the Philippines, Vietnam and Indonesia have sustained impressive growth rates in recent decades. Whilst this is a good news for ASEAN, they are also trapped in a pattern where the growth based on low cost comparative advantage is curtailed as incomes rise. Political economists called this pattern “Middle Income Trap”.

This issue has been increasingly important as ASEAN moves forward after its 50th anniversary. In moving from middle to high income status, middle income countries (MICs) must move their factors of production from capital and labour intensive (intrinsic) production to knowledge and innovation-driven production.

Are Middle Income Countries (MICs) able to make this transition smoothly? Not necessarily. MICs are finding it increasingly difficult to make this transition, as they are sandwiched between the lower cost competitors, and high income economies who have the institutional and human capital bases to drive innovation and technology.

They thus find themselves uncompetitive and trapped in this pattern of income.

Some have put forward regional economic integration, such as through the ASEAN Economic Community (AEC), as a strategy to avoid the middle income trap. However, the AEC is unlikely to provide a route to escape the MIT, and national strategies are likely to remain the priority for individual ASEAN governments.

Over time, ASEAN members progressed through the value chain by upgrading production processes and investing in human capital. It is worth noting that ASEAN’s success in maintaining security and stability in the region has been a key to unlocking the economic benefits regional stability brings.

This cannot be sustained forever, however. As illustrated by the Lewis Turning Point, when these economies have exhausted their surplus labour, wages begin to rise. This income growth erodes comparative advantage of low cost labour if wage rises are not accompanied by increasing productivity and technological upgrading. Growth rates subsequently slow as countries become uncompetitive.

Consider, for example, Indonesia, Malaysia and Thailand. They have not seen growth levels as experienced before the Asian Financial Crisis. Future growth is also of no guarantee. In essence, economies who experience this process become ‘trapped’, as they reach a certain level of income but find it difficult to move to high income levels. Only 13 out of 101 countries have moved from middle to high income since 1960.

ASEAN economies are facing significant challenges in relation to the MIT. In particular, innovation in ASEAN is low, which is indicated by the origins of patent registration. Data shows that the majority of patents registered in ASEAN economies come from multinational corporations, whose profits often flow back to the high income economies.

In addition, research and development funding in ASEAN economies is significantly low. For example, Indonesia under invests in Research and development, with only 0.1% of GDP spent in this sector and 0.3% on higher education. This contrasts with South Korea who escaped the middle income trap, and spends 4.4% of GDP on research and development, ranked first in the OECD.

We could see a problem here: Middle income ASEAN members are stuck in the middle, with higher labour and logistical costs and imperfect institutions making them uncompetitive. They are also lacking in innovation capacity and human capital for technological capabilities.

What could be done to resolve this problem? As Gill & Kharas convincingly argued, there is a need for institutional reform in areas of finance, governance and legal systems. ASEAN members need to become more specialised in what they produce –as well as shift from investment driven to innovation driven growth. This necessitates another factor: a structural transformation in ASEAN economies.

But could ASEAN provide a regional strategy for such transformation? Whilst ASEAN does provide some institutional anchoring, the AEC –regional platform for economic integration—are not institutionally deep enough to bind countries faster to reform. Rather, ASEAN tends to become a trend follower instead of a trend setter.

This is evident from various economic agreements and integration strategies adopted by ASEAN. To sum up, ASEAN’s institutional design are made to increasingly attract investment from to the region. Therefore, they are relying upon Foreign Direct Investment (FDI) rather than building up a more ambitious regional strategy.

This strategy might be relevant to facilitate transitions for some lower middle income nations –Vietnam, Indonesia and the Philippines— to middle income or from low income to lower middle income status like Myanmar, Cambodia and Laos. But still, it does does not represent the structural transformation necessary to escape the middle income trap, as growth continues to heavily rely on FDI rather than innovation.

The institutional weakness of ASEAN economic community has, to some extent, prevented the transformation from middle income countries higher to high income economies.

In light of this, the ASEAN Economic Community would have the potential to increase income growth for its member states. They could also allow economies to transition from lower middle income to middle income status. But the prospects of a regional strategy to transition from middle to high income do not hold as much promise, given the institutional weakness of the ASEAN Economic Community.

ASEAN member states who are seeking to avoid the middle income trap will need to unilaterally focus on their own political and institutional reform processes rather than relying on a regional commitment such as the ASEAN Economic Community. ASEAN policy makers should concentrate on implementing current agreements rather than focussing on grand designs.

As ASEAN is a trend follower rather than trend setter, middle income member states should focus on unilateral reform whilst keeping cooperation with neighbours in mind. This would provide fertile ground for ASEAN to follow. But it also provide future prospects of regional strategies for avoiding the middle income trap for current lower income members.

Let us see this happens in the next 50 years of ASEAN Economic Community.

*) Suraj Shah is MSc Candidate in the Political Economy of Emerging Markets, King’s College London and Visiting Fellow at ASEAN Studies Center, Universitas Gadjah Mada

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RELIGION: BOON OR BANE FOR DEMOCRACY?December 20, 2023 - 12:32 am
In December 2022, the Indonesian government passed a law that penalizes sex outside marriage. This is only one of the many changes in the criminal code that observers warn of the increasing conservatism in the country.

Indonesia houses the largest Muslim population in the world and is also a republic whose democratic experiences and milestones have been widely studied by scholars within and beyond the region. This makes Indonesia a compelling case for reflection on the nexus and tensions between religion and democracy. Is religion compatible with democracy? What opportunities and challenges does the “Islamic Renaissance” entail in the country? Democracy on Religion

Liberal democracy espouses secularism, the separation of church and state, and freedom of religion. In an “ideal” democratic system, the state must not endorse nor support any specific religion while guaranteeing the free exercise of religion among citizens. This is essential in a democracy for many reasons. Religious freedom is a crucial civil right that enhances citizens’ individuality and relations with others. It stops one religion from dominating society, hence promoting diversity and co-existence. At the same time, it prevents policies from being framed according to religious beliefs, which may result in discrimination and repression of fundamental human rights.

Religion and its Tensions with Democracy: The Case of Indonesia

This is particularly important for Indonesia. While the country is predominantly Muslim, Indonesia also has many ethnolinguistic groups with different cultures and practices. It is a challenge in itself to build one nation with an immensely heterogeneous society. The diversity in the country resulted in years of ethnic conflict and violence. Even a religious minority, the Ahmadiyya, faces intimidation and oppression in the exercise of their faith. Indonesia’s dilemma points to the longstanding debate in human rights discourse and practice – are human rights universal, or are they relative to culture and local customs? While I am more inclined to support the former, it is important to be aware and carefully consider the context of a country when designing human rights advocacy and interventions.

However imperfect, the democratization process in Indonesia has assisted in facilitating efforts for reconciliation and balancing competing interests in the country. Recently, the President stunned the world when he acknowledged past grave human rights abuses in the country, including an anti-communist purge in the ’60s and the arrest of democracy activists during the Suharto presidency.

Indonesia sits in between secularism and theocracy. The country’s fundamental law espouses Pancasila, which is the foundational political theory of Indonesia. Through its five principles, Indonesian society believes in one God and aspires to create a just and civilized humanity, unity, democracy, and social justice for all. This tells us that, by principle, Indonesia gives importance to pluralism and citizenship. Scholars and practitioners of the law also adopt legal pluralism and believe that different legal systems are complementary rather than contradictory. For example, community practices and customs are considered along with national and local regulations in settling disputes and conflicts at the village level.

However, in recent years, Indonesia has seen the expanding role of Islam in the country’s social and political life. Aside from Islam being a “source of ethical and cultural guidance”, many Islamic organizations have secured formal power, which allows them to easily introduce measures within the state apparatus that cement their own interests. Hardliner Islamic groups have also proliferated, and fundamentalist thought and practices are becoming more and more widespread. Islamic identity politics have also been evident since Widodo coalesced with conservative Islamic factions and appointed Amin, an influential Islamic figure, as his vice president. The new penal code tends to be more religious than secular. This has implications for Indonesia’s supposed secularism and diversity. How can the Indonesian government best represent the interests and aspirations of all?

As Indonesia continues to modernize and extend its economic and political ascendancy in the region, rapid changes in its social relations and dynamics are also expected. This demands a more careful look at the kind of laws and “social controls” that the government enforces. Suppose conservative forces are forwarding laws in the name of protecting tradition and keeping Indonesian values in check. In that case, it should not be at the expense of fundamental civil and political liberties, nor should it be to repress vulnerable groups even further, such as women, LGBT+, and ethnic communities. Admittedly, this is easier said than done. Hence, political representation must reflect the diversity and vibrance of Indonesian society. If only one group dominates political and policy discourse, it ultimately jeopardizes the general will.

When religion becomes the yardstick for crafting rules and policies, it creates biases, whether intended or not. Propositions that are credible and necessary but “contradictory” to a certain religion may be rejected simply because they do not fit the personal convictions of decision-makers. Integrating religion into politics usually leads to oppressive and harmful policymaking. Religion is also a form of heuristics or cognitive shortcut that devalues deliberation and discussion. Instead of scrutinizing issues, people may resort to using their religion as the sole basis for their position on a particular matter. Democracies ought to be deliberative and pluralistic.

Human rights activists and organizations in Indonesia have sounded the alarm on many changes in the criminal code that could stifle individual freedoms and lead to setbacks in the country’s democratic progress. Aside from banning sex outside marriage, the government also reinstated laws that criminalize insulting the President and other state officials and institutions. They also increased the punishment for blasphemy. These laws can be disproportionately used against individuals and groups with legitimate criticisms and concerns about the government. It may also render already marginalized communities even more vulnerable. Religion, Populism, and Repression

This trend is not only unique to Indonesia. Much of the world has seen the rise of “nationalist” movements, often within the pretext of religion and safeguarding culture. India’s Modi has exhibited Hindu nationalist tendencies, which have meant greater intolerance against the Muslim minority in the country. Myanmar’s Tatmadaw has weaponized Buddhism to rally support from the public and account for its atrocities.

The use of religion to justify repressive and oppressive regimes is apparent. Religion is an effective tool to unify a group of people and subject them to a specific set of beliefs and values, which may be highly prejudiced and absurd. Religion acts as a moral compass that defines what is right and what is wrong. Because religion is subjective, it can easily be manipulated to serve political objectives. Populists and autocrats can bastardize religion to create a public enemy, instill an “us vs them” mentality, and sow further polarization.

Failed democracies thrive out of fear, whether it is real or manufactured. Religion can be a potent force to ingrain this fear. This hysteria against change and modernization is easy to whip up when people already have preexisting beliefs. It is not too difficult to segregate people and label them as the “other”. When this distinction is entrenched, it is convenient to normalize discrimination and violence.

It is said that Indonesia is a model for “Moderate Islam” when compared to the Middle East; the “Indonesian way” can complement Western values and democracy. It also has the potential to correct Islamophobia and promote Islam as a religion of peace. On the other hand, if Indonesia cannot find its balance and condone fundamentalist and hardliner Islamic groups to flourish, Indonesia will certainly regress in its hard-won democratic gains.

Religion has inherent contradictions with democracy. Subscribing to a religion and structuring a supposedly diverse society using its tenets is monopolistic and can bring about intolerance. It is paramount for democracies to ensure that civil, political, and socioeconomic rights are not deprived based on religion and other forms of cleavages. The access and exercise of power should be as widely distributed as possible. Public office should not be limited to certain political clans or religious organizations. For instance, at the village level, cultural and socioeconomic elites must share power and administration with vulnerable and historically marginalized groups. There are more reasons and illustrative cases, present and past, to posit that religion is more of a bane than a boon to democracy. At the moment in world history when (dis)information is fast and instant, we must maintain vigilance in dealing with autocratic agendas in the guise of “respecting” values and tradition. It is easier to believe and conform than to reflect and deliberate. But democracy dies when we rely on shortcuts to define what is good for us. Democracy dies, slowly and deliberately, when we allow a few to sabotage our freedoms and liberties to increase their own. Demagogues and despots are usually cunning and do things “in the name of God”.

REFERENCES

Evans, M. S. (2014). Religion and political decision making. Journal for the Scientific Study of Religion, 53(1), 145–163. http://doi:10.1111/jssr.12088

Evans, T. (2012). Separation of Mosque and State in Indonesia. Policy, 27(4), 35–39.

Głodek, A., & Grzywacz, A. (2020). Indonesia – between religion and democracy, Warsaw: Boym Institute. Retrieved from https://instytutboyma.org/en/indonesia-between-religion-and-democracy

Jaffrey, S. (2020). Is Indonesia Becoming a Two-Tier Democracy?, Washington D.C.: Carnegie Endowment for International Peace.

Jamaluddin, M., Chen, H. & Watson, A. (2022). Indonesia bans sex outside marriage as parliament passes sweeping new criminal code, Jakarta: CNN.

Klinken, G. v. (2019). Living in a Sacred Cosmos: Indonesia and the Future of Islam. Journal of the Humanities and Social Sciences of Southeast Asia, 175(1), 81–135. http://doi:10.1111/jssr.12088

McWilliams, E. (2018). Democracy in Indonesia: A Progress Report, Washington D.C.: The Foreign Service Journal.

Nagda, A. (2020). The Diplomat. [Online] Available at: https://thediplomat.com/2020/03/the-islamization-of-indonesias-foreign-policy/

Omelicheva, M. & Ahmed, R. (2018). Religion and politics: examining the impact of faith on political participation. Religion, State, and Society, 46(1), 4–25.

The World Factbook. (2023). Indonesia, s.l.: Central Intelligence Agency.

Wieringa, S. E. (2006). Islamization in Indonesia: Women Activists’ Discourses. Signs: Journal of Women in Culture and Society, 32 (1), 40–27.

Short Biography:

Kay Conales is a student of the Asia Pacific-Master of Arts in Human Rights and Democratization of the Institute of Human Rights and Peace Studies (IHRP) of Mahidol University (Thailand). She also studied in the Faculty of Social and Political Sciences (FISIPOL) of APMA’s partner-university Universitas Gadjah Mada (Indonesia). She can be reached through e-mail at ksconales@gmail.com.

ASEAN After 50: Escaping the Middle Income Trap

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